Chapter E, Problem E.40AP

(Learning Objectives 2, 3: Analyze and report various long-term investment transactions on the balance sheet and income statement) Oregon Exchange Company completed the following long-term investment transactions during 2018:

2018
May 12	Purchased 18,200 shares, which make up 25% of the common stock of Nashua Corporation at total cost of $340,000.
Jul 9	Received annual cash dividend of $1.23 per share on the Nashua investment.
Sep 16	Purchased 1.000 shares of Columbus. Inc., common stock (less than 5% of its outstanding stock) paying $41.50 per share.
Oct 30	Received cash dividend of $0.33 per share on the Columbus investment.
Dec 31	Received annual report from Nashua Corporation. Net income for the year was $540,000.

At year-end, the fair value of the Columbus stock is $30,100. The fair value of the Nashua stock is $658,000.

Requirements

1. 1. For which investment is fair value used in the accounting? Why is fair value used for one investment and not the other?
2. 2. Show what Oregon Exchange would report on its year-end balance sheet and income statement for these investment transactions. It is helpful to use a T-account for the Equity-method Investment account. Ignore income tax.